Politics & Policy

The O'Bannon Ruling and the Beginning of the End of NCAA Inc.

It’s not going to happen overnight, but the current structure of NCAA Inc.–the $16 billion-a-year college sports industry–will have to change. Old myths of amateurism and sport-as-hobby, which for generations have held the National Collegiate Athletic Association together, are crumbling under twin pressures: university sports factories demanding freedom to commercialize football and basketball as they see fit, and elite players demanding a slice of the revenue pie. The center cannot hold.

Last week the NCAA’s Division I board gave the 65 schools with the richest sports programs greater freedom to increase financial benefits for top recruits and allow aspiring pro athletes to hire agents. Then a federal judge in Oakland struck down the NCAA’s rule barring players from licensing their names and likenesses for commercial purposes. The future will bring more concessions to the mutinous power conferences and more player lawsuits. And don’t forget the campaign to allow NCAA football players to unionize.

Given all the turmoil, it’s worth taking a close look at the Aug. 8 ruling by U.S. District Judge Claudia Wilken in the antitrust case known as O’Bannon v. NCAA, a reference to former University of California at Los Angeles basketball star and lead plaintiff Ed O’Bannon. Wilken’s ruling is far from the last word; the NCAA will appeal its defeat, and other cases are in the pipeline. Still, her 99-page disquisition constitutes the most probing judicial examination of the NCAA I’ve ever read. If higher courts embrace her findings, the revolution in the college sports industry will accelerate more rapidly than even the most ambitious advocates for change might had expected.

In a subsequent piece, I’ll explain what she proposes to do about the NCAA’s unlawful cartel-like conduct. For now I’ll boil down Wilken’s “findings of fact.”

1. The marketplace. To find a violation of the Sherman Antitrust Act, a judge must define the relevant market in which trade is being unlawfully restrained. Wilken identified two such markets. In one, which already exists, universities compete for top athletes who are compensated with scholarships and other come-ons. In the other, which would exist in the absence of the NCAA’s restrictions, television broadcasters and video game makers would compete for licenses sold by players for the use of the athletes’ likenesses.

2. The cartel. Under Wilken’s view of the marketplace, the NCAA is immediately in trouble. Its member schools explicitly collude to cap compensation in the competition for athletic talent, while they squelch altogether the market for student-athlete licenses. That’s illegal unless the NCAA can come up with a “pro-competitive” justification for its conduct. Wilken knocked down each of the NCAA’s purported justifications.

3. Amateurism. The association claims that consumer demand for its product–football and basketball games–rests on fan preference for amateur competition. Wilken noted, though, that the very concept of amateurism is an NCAA confection and one that universities have defined inconsistently over the decades.

Early in the 20th century, NCAA rules barred athletic scholarships that today are seen as sacrosanct. So schools recruited students with flat-out “subsidies” and under-the-table payments. In 1948, the NCAA enacted a “Sanity Code” designed to eliminate the cash-in-envelopes for ringer football players. That code banned financial aid based on athletic skill, a prohibition that would, again, have ruled out present-day sports scholarships. The NCAA soon repealed the Sanity Code and created an enforcement committee to investigate rules infractions, the forerunner of the contemporary disciplinary apparatus that (absurdly) polices such sins as students selling jerseys or championship rings on EBay (EBay). In 1956, the NCAA reconceived amateurism as allowing athletic scholarships that included supplemental cash for incidentals like laundry and supplies. In 1975, it retracted permission for incidental cash but later allowed players to receive federal Pell grants, even if the latter exceed the cost of attending college. Other exceptions now allow, for example, NCAA tennis players to accept professional tournament prize money earned as teenagers.

In short, Wilken found that amateurism is whatever the NCAA says it is–a justification that’s too convenient by half. Moreover, she poked large holes in consumer surveys upon which the NCAA relied to show that college sports fans want to watch only amateur competition. The surveys were distorted by leading questions and dubious interpretations of ambiguous results. The NCAA’s own witnesses conceded that fans buy tickets based on alumni loyalty and regional attachments. An athletic department official from the University of Texas testified that UT sports would remain popular as long as they had “anything in our world to do with the University of Texas.”

4. Competitive balance. Wilken seemed to struggle to keep from laughing this justification out of her courtroom. The NCAA claims that its restrictions on player benefits are needed to preserve competitive balance among sports programs. Wilken observed that while schools constrain player compensation, they compete aggressively on such expenditures as coaches’ salaries and lavish sports stadiums and training facilities. There’s no real balance within Division I between the top 65 schools in the five power conferences and the also-rans, the judge said. And the distribution of television revenue–rewarding disproportionately the schools that have the largest athletic budgets–reveals that the NCAA doesn’t care about parity.

5. Educational quality. The NCAA claimed that denying athletes a dime more than their scholarship somehow improved their education. Baloney, responded Wilken. Sensible rules requiring athletes to attend classes were never at issue in the O’Bannon case. And Wilken seemed offended by the NCAA pretense that its members recruit jocks like O’Bannon primarily–or even in significant part–to make sure they hit the books. At trial, O’Bannon testified that he felt like “an athlete masquerading as a student” during his years at UCLA.

In light of all this, Wilken concluded that the NCAA hadn’t justified its ban on players licensing their images for profit. How far the NCAA has to go in loosening its restrictions will be the topic of my next post.

Barrett is an assistant managing editor and senior writer at Bloomberg Businessweek. His new book, Law of the Jungle, tells the story of the Chevron oil pollution case in Ecuador.